When you started your first-ever full-time job in your 20s, you probably thought that you can still set aside investing and preparing for your future. When your 30s came, life gave you more priorities that investments are still out of your radar.
But the truth is, there is no such thing as being too early when it comes to investing. When you start earlier, you can also take advantage of compound interest better.
Compound interest refers to the interest paid on the principal and any interest from the previous years. This interest is typically used if a person decides to reinvest the interest they accrued back to their original investment.
Consider this example: if your $1,000 investment has 15% interest in the first year and you reinvested the money back to your original investment, in the second year, you will receive 15% interest not just on $1000 but also on the $150 you reinvested. After some time, compound interest makes more money compared to simple interest.
With this example, you can easily see that investing early can make you reap more rewards later on in life.
What Should You Invest In?
It is never easy to decide which assets you should invest in. There are lots of factors you need to consider. However, your choice will still mainly depend on your stage of life, your financial goals, and your investment timeframe.
If you are already nearing retirement or you have a short-term goal such as a dream vacation, you might want to choose lower-risk assets and those that will give you easier and faster access to your money like cash or bonds.
However, if you want to invest for the long term or even for just a medium-term, you must opt to invest in those assets that will allow growth in your savings over time such as property, infrastructure, and equities.
It doesn’t really matter if your goal is here and now or in the distant future. It is a must that you choose to invest in assets that will let you hedge against inflation or increased cost of living. If not, you will soon discover a reduced spending power the moment you decide to draw on your investment.
Why Does It Pay to Invest Early and Stay Invested?
One of the most critical aspects of a successful long-term investment is to understand and remember that economic conditions can fluctuate or change over time. There are a few basic principles to help you reach successful long-term investment choices. Keeping all of these in mind, especially during volatile financial markets, can help you stay right on track.
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- Sell high and buy low since starting point valuations are important.
- Regular investments of smaller amounts and compound interest can make a substantial difference over timeframes of more than 20 years.
- Focus on those investments that provide sustainable and decent cash flows, distributions, rental incomes, and dividends since these can serve as an effective buffer during volatile times.
- Always invest for the long term and avoid making hasty decisions during volatile times.